PAP.L Share News (PAP)

(ShareCast News) - Exane BNP Paribas upgraded Betfair to 'neutral' from 'underperform' following the announcement on Wednesday that it has agreed in principle to the terms of a merger with Paddy Power.Exane said the new discounted cash flow-based valuation for Paddy Power points to €95 a share. Based on that, and taking into account the 52%/48% proposed merger ratio, it calculates its new target price for Betfair at 3,000p, from 2,100pThe bank said that from a strategic standpoint, the deal is logical and would create a lean entity with strong cash generation, leaving room for sizeable dividend payments. In addition, it said geographical exposure is largely complementary, with Paddy in Australia and both companies in Italy.Still, Exane said they will continue to operate separate brands and are already very cost-lean companies, meaning the potential for synergies seems low."The deal needs a great deal more analysis, but at first sight it looks like the market has already priced in the merger of the two companies," it added.Exane noted the deal should be finalised by end 2015 or beginning of 2016, and said it does not expect any headwinds from the Competition and Markets Authority.At 1209 BST, Betfair shares were up 3.5% at 3,245p.